Strategies for lowering past due accounts: BEST practices of Katipunan Bank (Zamboanga del Norte) Inc.

Strategies for lowering past due accounts: BEST practices of Katipunan Bank (Zamboanga del Norte) Inc.
 
Published : Thursday, July 21, 2011 00:00 Article Views : 285 Written by : Severino Frayna
 
We consolidated our operations the past three years when we merged with the Plaza Rural Bank of Carcar, Inc. in 2008.

While it was no easy feat of fusing and merging 2 banks, we now take pride that we have become one of the most active players in microfinance, an activity that our regulator, the Bangko Sentral ng Pilipinas, had actively encouraged for more than a decade already. The late BSP Governor Rafael Buenaventura actively pursued the participation of countryside lenders like us in the micro loan space to empower more or our people in the financial sense and helps build a stronger, more inclusive financial system in the process.

Most of us have responded to that call with enthusiasm, the greater number of our colleagues having built a substantial microfinance loan portfolio that not only earned the praise of our regulator but empowered our clients at the same time as well.

The Key - Keeping Past Due down to a minimum

But success brought with it attendant problems in some of us. While some of our colleagues struggled with past due loans, for instance, we at the Katipunan Bank (zn), Inc. were spared the trouble. It is not as if we have zero incidence of past due loans but we certainly take pride that we have kept it to the minimum.

Our past due ratio, for both the regular loan portfolio and our microfinance operations, averaged only 2.32 percent at end-April this year. We performed better than our regular commercial as well as expanded license or universal bank colleagues whose past due ratio averaged 4.03 percent in April.

Our regular loan portfolio posted a past due incidence of only 0.96 percent while our microfinance portfolio sustained a 1.38 percent past due ratio. It must be said that Katipunan Bank (zn), Inc. has a regular loan portfolio amounting to P578.09 million and only P201.60 million in microfinance loan outstanding at end-April. We have 13,567 regular loan borrowers and nearly three times that number in micro loan borrowers totalling 39,574. Only 15 percent or P116.6 million of our loan portfolios are classified as secured loans with the greater bulk or 85 percent representing unsecured loans worth P663.07 million. Nevertheless, and like I said before, our regular loan portfolio sustained minimal past due loan ratio of only 0.96 percent and our micro loan portfolio a past due ratio of only 1.38 percent. It must also be said we have during the period total resources amounting to P955 million, total deposit liabilities of only P494.6 million and total equity of P136.2 million.

In all this time our loans-to-deposit ratio proved optimum at 157.6 percent and testament to our success in mobilizing interest-earning deposits to support our loan growth goals. We have had no trouble supporting the loan requirements of our clients as indicated by our liquidity ratio averaging 22.26 percent. Our fixed asset ratio has also proven just right for us as a microfinance-oriented lender at only 42.55 percent. The central bank, the Bangko Sentral ng Pilipinas, has also cited the sufficiency of our capital to meet operational requirements as we posted a capital adequacy ratio well above minimum at 14.29 percent against the floor of 10 percent imposed by regulation. As a result, we have been asked by colleagues in the industry as well as by clients themselves on many occasions as to how we managed to keep our past due rates to the minimum. Here is how we did it.

On the personnel level, we emphasized the impact of portfolio-at-risk as well as the impact of non-performing loans on their performance as employees of the bank. We raised the accountability of both field personnel and operations personnel and made it clear that any increase in portfolio-at-risk was in fact a reflection of their performance as employees. In line with this, we set up a task force whose mandate was to reduce the past due incidence by a significant degree within a six-month period. But while we frowned on any more past due loans, we encouraged our personnel to collect on outstanding accounts by giving them incentives to do so.

We made it a point to closely monitor all past due accounts from the unit level up to top management level so that everyone was involved in the fight to reduce past due loans to the bare minimum. We also instituted prompt reporting and action on all delinquent accounts as they are found. For those accounts that took a little more effort to collect than others we set up a small claims and litigation unit.

In addition, we began to write-off bad accounts twice a year but took care to reflect the written-off accounts on the performance of individual employees and branch. By this method we instilled the notion that past due loan are to be dealt with as swiftly and efficiently as possible.

Teaching clients and employees to be responsible partners

At the client level, we gave our clients financial literacy lectures that oriented them properly on the responsibilities of borrowers. The broader goal was to instill credit discipline among them. We taught them about the impact of past due loans on our aggregate loan portfolio and why it was important that we have “zero tolerance” on delinquent accounts, particularly on our microfinance portfolio. We endeavored to closely monitor the business operations of our borrowers as well.

At the management level, we have an internal loan review system designed to fortify the policy on loan-loss provisioning because laxity or failure will reflect on the performance of both the branch and its personnel. We also incorporated a system for the aging of our loan accounts on both the regular as well as microfinance portfolios reflecting the buffer rates mandated by the BSP. This allowed us to quickly tell which of the accounts were problematic and for how long.

All the while we have internal auditors that make independent monthly assessments on loan loss provisioning for both regular and microfinance accounts. We provided incentive packages for the personnel and staff that met the standards and targets. What all these mean is that bank management promptly and efficiently acted on recommendations made to optimize the loan programs of the bank.

Part of the success may also be attributed to refresher courses for our personnel and customer surveys we conducted that let us know the satisfaction derived by our clients on services we rendered. All of these measures put together helped make us what we are today as financial services provider for our clients and competitor among peers in the field.

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